In the expanding e-commerce universe, India appears poised to be the next China, that is, a developing economy with millions of consumers seeking access to varied products to purchase. But India is not China, and neither nation is following the path cut by U.S. e-commerce retailers, so the next steps remain uncertain, both literally and figuratively.

The literal next steps are getting purchases packed and shipped from retailers to customers. Such steps are particularly difficult in India. The nation’s infrastructure is notably underdeveloped, featuring poor roads, outdated trucking fleets, insufficient air transport capacity, and insufficient legal protections for shippers. The threat of every monsoon season also means that logistics providers have trouble keeping delivery promises, especially if the buyer expects rapid delivery. As a result, many e-commerce companies spend the equivalent of a whopping 30 percent of their sales on logistics, approximately three times as much as Amazon does in the United States.

Figuratively, e-commerce in India also is uncertain because of the structure adopted by the existing startups. Most of them still rely heavily on venture capital; virtually none of them are profitable on their own. Although nationwide e-tailers such as Flipkart and Snapdeal assert that they plan to be profitable within two to three years, they have not released their plans for doing so. But as these competitors seek to become the first site shoppers visit, they are offering great deals and discounts, along with free shipping to buyers across the country. In many cases, they thus take a loss on each sale, especially if a buyer purchases a single, inexpensive item.

The consumer base also remains something of a question mark. Web penetration is still comparatively slight in India, where nearly 1 million people remain without consistent Internet access. In turn, whereas China’s e-commerce market has exploded in the past decade, growing in value from $7 million to $458 million, India’s e-commerce is worth only about $4 million today. Part of this difference stems from the individual level. The average Indian consumer’s online order is worth the equivalent of about $20. In the United States, each order instead averages around $100.

 

Discussion Questions:

1. Why are logistics in India complex and costly?
2. What are some of the biggest differences that define e-commerce in India, China, and the United States?

 Source: Sean McLain and Newley Purnell, The Wall Street Journal, October 23, 2015